Electricity Price Cap Likely to Be Extended
Federal price limits credited for helping to bring California’s energy crisis under controls are likely to be renewed this fall, a top regulator Wednesday told U.S. senators probing manipulation of Western energy markets.
“I fully expect we are not going to go from the regime we have to nothing,” said Patrick Wood III, chairman of the Federal Energy Regulatory Commission, facing tough questions at two Senate hearings about market gaming in California. “We will put the appropriate regime in place to make sure that just and reasonable rates continue to happen.”
Wood had indicated a preference to let price limits to expire. But that prospect evaporated in the heated political reaction to last week’s disclosure of Enron Corp. memos detailing ploys for gaming California’s energy market.
California Gov. Gray Davis met with Wood last week to urge that the price caps be extended, and there was “a big ‘hallelujah!’ from the governor’s office” Wednesday, said spokesman Steve Maviglio.
Wood’s testimony came as Sen. Byron Dorgan (D-N.D.) called for the appointment of a special counsel to investigate Western energy pricing and announced plans to grill Army Secretary Thomas White, a former Enron executive, on what he knew about the company’s efforts to drive up prices during the California energy crisis.
White has denied any knowledge of Enron price manipulation, which was revealed by memos last week. But the Bush administration’s ties to Enron have made the market manipulation investigation not only a fight by California for refunds and lower-priced energy contracts but a political battle between Democrats and the Republican administration over whether federal regulators moved forcefully enough to protect customers.
The memos--the focus of Wednesday’s hearings before the Senate’s consumer affairs subcommittee and Energy and Natural Resources Committee--outlined ploys used to drive up prices during the energy crisis in 2000 and 2001.
Enron staff attorney Richard Sanders was one of five lawyers who wrote or received the memos and who underwent sharp questioning Wednesday from committee members. The attorneys insisted they acted quickly to put an end to the deceptive practices. But senators questioned whether they acted aggressively enough.
“If I was in your position and I found out these schemes and these scams that you discussed, I would be excited about putting a call through to [former Enron Chairman Kenneth] Lay and saying, ‘I’ve got to tell you as your lawyer what I just learned,’” Sen. Barbara Boxer (D-Calif.) told Sanders. “But you waited to December to put a stop to it, and yet you can’t ... prove that it ever stopped.”
Democratic senators reserved their sharpest criticism for the regulatory agency.
“I think a full investigation of FERC and its behavior, its contacts, is necessary to evaluate why the referee or regulator sat silent,” said Dorgan, chairman of the consumer affairs subcommittee.
FERC reluctantly enacted price limits last June, setting an upper bound on prices for power and forbidding producers from withholding supply. In a compromise with free-market advocates on the agency’s governing board, the control were to be temporary, expiring Sept. 30, 2002.
Wood left open the possibility that FERC may make some changes in the price limit plan when it takes up the issue this summer. He hinted that Western states that have experienced no price spikes and generate sufficient power to meet their needs may be exempted.
Wood’s comments were welcomed by the California Independent System Operator, which balances supply and demand on an electricity grid serving about 75% of the state. Cal-ISO also operates markets for last-minute energy not already supplied by utilities’ own generation sources or long-term contracts with the state Department of Water Resources, the primary power buyer for the state.
Cal-ISO has been pushing FERC to extend the price caps and other market protections until the ISO can implement a broad market redesign, which includes proposals for price controls.
“The price cap has been very effective in keeping the market healthy and keeping prices down,” said Cal-ISO spokesman Gregg Fishman.
Although only 5% of the power for California’s three big investor-owned utilities is purchased through Cal-ISO’s price-capped markets, it still represents a significant number of megawatt-hours each day, Fishman said. The current cap, sent through a complex formula, is $92 a megawatt-hour and actual electricity prices Wednesday topped out at little more than one-third of the cap.
For the first time, Wood also offered some clues on how he will approach demands by Davis and others to renegotiate long-term power contracts entered into last spring. Wood said some of the abusive practices may have already been forbidden by regulators before the contracts were signed. In other cases, companies claim they themselves put a halt to gaming strategies.
“If the contract was signed thereafter, there probably is not a direct link,” Wood said. “If this behavior had stopped, that’s a pretty critical fact.”
Also Wednesday, Davis urged FERC to expand its investigation to include recently disclosed sham trades that Dynegy Inc. and Reliant Resources Inc., both of Houston, conducted with CMS Energy of Dearborn, Mich. The trades, which exchanged like amounts of energy at the same price with CMS, did not affect the price or supply of electricity in any markets and are no longer occurring, Dynegy and Reliant said.
But Davis, in a letter to Wood, said that FERC “needs to look at these and other market manipulations.”
In addition to Enron, power sellers singled out during Wednesday’s hearings were Williams Cos., Powerex Corp., Duke Energy Corp., Dynegy and Coral Energy. All of the companies on Wednesday denied behaving improperly in the California market.
Williams of Tulsa, Okla., and Powerex, the marketing arm of British Columbia’s provincial utility, were mentioned in handwritten notes from October 2000 meetings of Enron lawyers and traders, who described those two companies as “pigs at trough.” California Atty. Gen. Bill Lockyer, who released the notes late Tuesday along with the attorneys general of Oregon and Washington, concluded that Enron’s description of Powerex and Williams meant others in the industry were engaging in similar questionable trading practices.
Williams spokeswoman Paula Hall-Collins called Lockyer’s assertion “a pretty big leap,” and she denied that the company manipulated electricity supplies or prices through the sort of trading strategies detailed in the Enron memos.
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